BLAIN’S NOTES: Don’t fall too far into the hype, we are pretty skeptical of Robinhood. Zecco tried the same proposition of $0 trades, raising $25 million in VC capital along the way. Within a year the company had to begin backtracking on its offering, and eventually the company settled for a “merger” with TradeKing. Robinhood claims it is going to make its money off interest from cash in client accounts as well as revenues from payment for order flow once they actually have order flow to sell. Furthermore, the founders are going for a mobile only trading experience. Trust me, there will be web trading as well by the time 2015 concludes. Even with the surging mobile trading growth, collectively industry wide mobile trades most likely are in the vicinity of 10 – 15% of the total. What these two young tenacious founders may not realize is that the margins already are crazy tight on equity trades and clearing costs alone are going to put them in the red. To succeed, Robinhood is going to have to build a large enough user base so that it produces atleast 10s of thousands of trades per day (Merrill Edge also offers $0 trades depending on the account). With this, they can sell the order flow to the highest bidder and make money on the spread (forfeiting any sort of quality executions for clients in return). Then, they have to hope that their costs are still low enough to still squeeze out a profit margin. I give the founders credit, but it’s a tall order that’s going to take multiple years and much more than $16 million if they want to stick to $0 trades.
Aaron: StockBrokers.com has been keeping you updated about the pending Robinhood App launch. A few months ago, we blogged about the funding Robinhood received. As of Thursday December 11, the Robinhood App is now live for the iPhone. Those who were first in line have received invitation emails to download the app.
What is Robinhood all about? This is a start-up that has set out to change the way Wall Street works. There are no commission fees for trading stocks or ETFs through Robinhood. Users are able to place market orders, limit orders, track data in real time, and customize watch lists for free. It is important to note that there are some fees associated with Robinhood. Here is a link to the Robinhood Fee Schedule.
Co-founders Vlad Tenev and Baiju Bhatt were friends in college, and this venture has been in the works for quite some time. The co-founders said that they received a lot of motivation from the Occupy Wall Street movement in 2011. What is their goal with this project? Their stated goal is to make zero-commission trades available to the average investor. They are particularly excited about the amount of young people who are in line for the Robinhood App. Recently, the founders said that 80 percent of the investors in line for this app were under the age of 30.
Robinhood has raised $16 million in funding. Investors include Snoop Dogg, Jared Leto, and Nasir (Nas) Jones. Robinhood plans to launch an Android app in the first half of 2015.
StockBrokers.com will keep you updated on Robinhood as more details become available.
For more on Robinhood, visit their website.